UK regulator proposes strategic status for Microsoft

The UK Competition and Markets Authority has proposed designating Microsoft with Strategic Market Status in business software, a move that would give the regulator scope to impose conduct requirements on the company.

The proposed designation falls under the Digital Markets, Competition and Consumers Act 2024, which created a framework for the CMA to tackle firms judged to hold substantial and entrenched market power in strategically important digital activities. If confirmed, the status would allow the watchdog to introduce legally enforceable remedies governing how Microsoft sets and applies software licensing terms.

The case centres on Microsoft's business software ecosystem and follows concerns from customers and rivals about licensing practices tied to cloud use, product bundling and switching costs. Those issues have become a focal point in the UK cloud market debate, where regulators have examined whether software terms influence where customers run workloads and which suppliers they choose.

The CMA has already examined parts of the market through its cloud services investigation, which found that Microsoft's licensing practices were harming competition and recommended prioritising an investigation under the new digital markets regime. The proposed Strategic Market Status decision marks the first formal step in that process for Microsoft's business software activities.

In comments published during the consultation, organisations from sectors including technology, insurance, higher education and software services described how Microsoft's commercial terms affected procurement decisions. The Coalition for Fair Software Licensing, an industry group based in North America, said the move reflected complaints it had heard from UK customers.

"The CMA's proposed decision validates what customers across the UK have been telling us for years," said Ryan Triplette, executive director of the Coalition for Fair Software Licensing.

Triplette said the group believes licensing restrictions have had commercial effects on both public and private sector users. "Microsoft's restrictive software licensing practices are raising costs, limiting choice, and making it harder for organizations to adopt the technology that best serves their needs," he said.

The coalition said it submitted case studies to the regulator in which software suppliers lost business after customers chose Microsoft products included in broader commercial bundles. According to the group, one cyber security company lost a contract with a client generating more than €23 billion in annual revenue after the customer decided to cut costs by consolidating with Microsoft, despite preferring a competing security offering.

It also said another company had linked all of its annual customer churn, amounting to 6%, to Microsoft bundling practices. The group argued that such losses directly reduced the money available for research and development.

The CMA has framed the case around customer choice and interoperability across business software and cloud services. Sarah Cardell, chief executive of the CMA, said: "Organisations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers."

She added: "We want to ensure businesses have the freedom to choose how they use Microsoft's products alongside alternatives."

Customer evidence

The consultation record cited by the coalition points to a broad range of respondents, from large technology groups to universities and smaller software businesses. Their submissions focused on the cost of moving away from Microsoft products, the pricing of licences in different cloud environments and the way bundled products can affect competition in adjacent software markets.

Critics argue the effect is not limited to large cloud infrastructure providers competing with Microsoft. They say the commercial terms can also affect specialist software vendors in areas such as security, collaboration and business applications, because customers may opt for bundled Microsoft products rather than separate third-party tools.

Triplette said those concerns should be treated as immediate commercial barriers rather than abstract policy issues. "These are not abstract competition concerns," she said. "They are real barriers that affect the ability of public and private organizations across the UK to innovate on their own terms. The evidence reveals a consistent pattern of leveraging existing customer dependencies to steer them toward Microsoft products. Customers aren't choosing those products because they're the best option. They're choosing them because switching has been made deliberately costly."

Next steps

The proposed designation would not in itself change Microsoft's conduct. Its significance lies in the remedies that could follow if the CMA reaches a final decision, including requirements targeting the licensing and bundling practices identified during the investigation.

The coalition said the regulator should move quickly from designation to intervention. "That is why it is critical for the CMA to move swiftly in receiving information regarding potential interventions that prevent Microsoft from further tightening its grip on the market," Triplette said. "UK businesses and institutions deserve the freedom to choose the cloud and software providers that deliver the greatest value without being penalized for doing so."

The UK process is unfolding alongside wider scrutiny of Microsoft's licensing and bundling practices in other jurisdictions, including an ongoing investigation by the US Federal Trade Commission, as regulators examine how dominant software ecosystems shape competition across cloud and business applications.